Page 261 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes According to Koutsoyiannis, “Price discrimination exists when the same product is sold at different
prices to different buyers.”

13.7 Types of Price Discrimination

Price Discrimination are mainly of four types—
1. Personal Price Discrimination: When particular goods are sold at different prices to different
buyers then it is called personal price discrimination. Personal price discrimination is possible due
to unawareness of customers, minor difference in price, or due to nature of goods or services. Like
when a doctor takes different charges from rich and poor patients in the name of operation then it
is called personal price disseminator.
2. Geographical Price Discrimination: When goods are sold at different prices at different places it is
called Geographical Price Discrimination. For example, a trader sells his product at different prices
in the foreign market and in local market as in case of jumping which means to sell the product at
cheap rates in foreign market.
3. Price Determination According to Use: When a product is sold at different prices for different
utilization it is called utilization price discrimination or Trade Discrimination like every unit price
of electric is high but for agriculture use, it is low.
4. Price Dissemination According to Time: Many public utilities industries sell one product in various
rates in various times. For example, telephone department charges low rate at night or early in the
morning for calling, but the call charges are high during day time.

13.8 Degrees of Price Discrimination

Pigou has divided the Price Discrimination into following three different types in his book ‘Economics
of Welfare’—
1. Discrimination of the First Degree: Discrimination of first degree is that discrimination in which
monopolies charge different prices for every unit of goods. That particular price of every unit is
determined which price a buyer wants to pay. In this way, he has no consumer surplus. So the
determination of first degree refers to a state consumer saving in zero.
2. Discrimination of the Second Degree is that Condition: Discrimination of the second degree where
different products are charged at different prices. For example, the state electricity board charges
less for initial unit upto a limit, after that the charges are more for further consumptions of units. In
this state consumer has some surplus.
3. Discrimination of the Third Degree: Discrimination of the third degree is that discrimination
where the producer divides total market of goods into two or three groups and charges at different
prices from each group. For example, if the monopolist determines the high rate of product for local
market and low rate for foreign market then it is called discrimination of the third degree. In real
life situation, discrimination of the third degree is more common.

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